These are some of the questions I had reflecting on the exodus from Bangalore and other cities of migrants from the Northeast, who were reacting to threatening SMS messages warning of violent retaliation from Muslims.

Gripped in panic, an estimated 40,000 northeasterners living in Bangalore, last week boarded trains to return home.

As it happens, I was in Bangalore the morning that these rumors began to spread and, as far as I could tell, there had been no inkling in the week I was there of the panic that was to follow. It's as though someone pressed a switch and the rumors spread like wildfire over the coming hours and days.

For this type of rumor, which threatens violence against an easily identifiable migrant community, the most fundamental criterion determining how likely someone is to believe the rumor and possibly act on it is the level of his or her faith in public authorities.

If someone believed that the police or other government authorities would protect them in the event of an actual threat, he or she would be more likely to dismiss the rumor and not act upon it. If, however, someone has limited or no faith in law enforcement, he or she would probably attach a high weight even to a small probability that the rumor is true.

Many northeasterners in Bangalore obviously revealed their lack of faith in the authorities and chose to return home instead. This shouldn't come as a surprise since there have been many instances in recent history of the failure of government authorities in different parts of the country to protect their citizens.

For those who chose to leave, they would have to weigh the opportunity cost of forgoing their income against the risk of being injured or killed if the rumors proved to be true.

Interestingly, though, there were differences among members of the northeastern minority in Bangalore in terms of how likely they were to act on the rumors and leave. According to some news reports, college students were less likely to leave whereas workers such as watchmen, cooks, aestheticians at beauty parlors, and other service providers were more likely to leave.

One obvious explanation is that the former group had invested time and money in their education and so had a lot to lose if they gave up midstream, as compared to a worker who is presumably more easily able to return to work a few months later or who might have the fallback of agricultural labor at home.

The deeper reason might be that the former group are more integrated into mainstream society than the latter. College students in many cases received the support of their institutions and even their professors whereas workers who lacked the support of a large institution and peer group would have fewer options to fall back on in case the rumors proved accurate. This could make them more likely to leave.

This pattern seems to fit with a theory put forward by Ashutosh Varshney, a political science professor at Brown University, in his award-winning book "Ethnic Conflict and Civic Life: Hindus and Muslims in India."

Mr. Varshney argued that ethnic strife was more likely to flare up when there was a lack of civic ties binding together different communities, and conversely would be less likely to break out when such ties were strong. Although the context is different, this thesis might help explain why migrants who are more closely tied to the larger community felt less threatened and therefore were less likely to leave than those whose ties with the larger community were more fragile and tenuous.

All of this doesn’t explain why the rumors didn’t remain contained among a smaller group of people who presumably received the threatening SMS messages but rather morphed into a full-fledged panic.

Abhijit Banerjee, an economics professor at the Massachusetts Institute of Technology, built a conceptual model of the spreading of rumors that offers us some guidance. At the root of whether to accept or reject a rumor is a fundamental information asymmetry: Someone receiving a rumor doesn't know for sure whether it's grounded in reality or not.

The key insight in Mr. Banerjee's model is that the economics of rumors has an identical mathematical structure to the epidemiology of the spread of disease. In both situations, there's some probability that any given person will come across it and become "infected.”

The logic follows that the probability of “infection” increases in proportion with the number of people who have already been infected, meaning we have the makings of an epidemic.

Applied to the Bangalore situation, this theory suggests that a driving factor in rumors turning into panic is that people became more likely to pack their bags and leave if they saw others doing so as well. At least from anecdotal accounts in the news, this does seem to be what happened.

As it turns out, Mr. Banerjee's theory on how rumors spread might help explain one of the age old problems in financial economics, which is to account for the excessive volatility (compared to underlying fundamentals) we tend to observe in asset markets like the stock market, commodity markets, currency markets, etc…

So-called “herding behavior” in these markets, where a small group of investors takes a decision to buy or sell and then a large mass follows them, is exactly analogous to the spreading of rumors or of an epidemic.

In all such cases, perfectly rational behavior at the level of a single individual can lead to apparently irrational behavior at the level of the group, such as a mass exodus in the presence of vague threats. As in preventing the spread of an epidemic, the lesson here is that the best cure is reducing the infection rate, and that will only happen when more people begin to trust that the authorities will look after their safety.